Picking Your Pockets

Stealing a page from Elliott Management, the $27 billion hedge fund founded by Paul E. Singer, who successfully sued Argentina for payment of defaulted bond issues, other hedge fund managers have been buying distressed Puerto Rican debt hoping for a similar payout.

The strategy works like this:  Puerto Rico is known to be in dire financial straits. With the tax free debt of this US territory trading at large discounts hedge funds have been buying these bonds in the secondary market and hoping to convince congress to bail out Puerto Rico.  Essentially they want the U.S. taxpayers to pay the full price for the bonds they bought for pennies on the dollar.

Fortunately, legislation has just passed out of a house committee that would set up an oversight board to restructure Puerto Rican debt.  Seeing that their gambit is slipping, the hedgies have resorted to buying ads that protest this restructuring and warning that states like Michigan could be the next to restructure their debt and pay less than 100% of bond obligations. These hedge funds conveniently forget that Puerto Rico is not a state.

By remaining quietly in the shadows and using their political contributions to convince your congressional representatives to argue for them, they hope to turn your money into their money by political fiat.

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